Credit risk decisioning is being called out as the biggest challenge facing banks and financial institutions (FIs) in a time of rebuilding. Banks and FIs have tripled their use of artificial intelligence (AI) in this area since 2018, and it’s ramping up more intensely now.
This PYMNTS Data Brief focuses on credit challenges that have been worsened by the pandemic, and how AI is alleviating pain points in risk. Per new data, 88 percent of FIs say the pandemic “exacerbated lending and credit issues, making this area the one most impacted by the health crisis.”
For this latest in the long-running research series, AI in Focus: The Navigating Bank Credit Risk Playbook, a Brighterion collaboration, PYMNTS researchers surveyed 100 FI executives on the uses of AI and advanced computational systems in banking, among other sectors.
Respondents were clear that the pandemic, coupled with a drastic digital shift, muddied the waters of creditworthiness to the point where even the biggest and best-staffed credit teams were overrun by risk. That has caused unwanted opacity in credit decisions at a time when late card payments, less accurate credit scores and resulting charge-offs are climbing.
As the Playbook notes, “A large majority of banks have turned to two main strategies to reduce their exposure to downside credit risk: automation and real-time data,” with 71 percent of FIs increasing their use of decision-making automation and AI to mitigate risk since 2020.
Increased use of real-time, high-frequency data for this purpose attends the trend. More banks and FIs are realizing the essential nature of real-time data and automation in risk mitigation.
“AI’s benefits lie in its ability not only to process and learn from data, but also to surface insights that might elude thousands of human analysts,” per the Playbook. “This is one reason why credit risk has become a growing use case for AI in the banking sector: It has the potential to capture a far wider and richer view of borrowers and economic indicators that can affect overall risk.”